The stock market has never been more accessible. Commission-free trading apps, fractional shares, and abundant educational resources have lowered the barrier to entry. But accessibility doesn’t equal profitability. Here are the seven most common mistakes new traders make—and how to avoid them.

1. Trading Without a Plan

The most damaging mistake new traders make is entering positions without a clear plan. Before buying any stock, you should know:

• Why you’re entering the trade (your thesis)
• Your target price for taking profits
• Your stop-loss level (when you’ll exit if the trade goes against you)
• How much of your portfolio you’re willing to risk

Without these defined in advance, you’re not trading—you’re gambling. Write your plan down before placing the trade and stick to it.

2. Ignoring Risk Management

New traders obsess over finding winning trades but rarely think about managing losing ones. Professional traders know that losses are inevitable—what matters is keeping them small.

The most important risk management rules:

• Never risk more than 1-2% of your portfolio on a single trade. If your account is $10,000, your maximum loss per trade should be $100-$200.
• Always use stop losses. A stop loss that’s never triggered is a feature, not a waste.
• Size your positions appropriately. The distance to your stop loss should determine your position size, not the other way around.

3. Chasing Performance

Seeing a stock up 40% in a week creates a powerful urge to jump in. But by the time a move is making headlines, you’ve likely missed the bulk of it. Chasing parabolic moves is one of the fastest ways to blow up an account.

Instead, develop a systematic approach to finding opportunities. Screen for stocks that match your criteria before they make their big moves, not after. Tools that analyze algorithm performance across different stocks can help identify potential opportunities before they become obvious to everyone else.

4. Overtrading

More trades don’t equal more profits. In fact, the opposite is usually true. Each trade carries risk, and the more frequently you trade, the more you’re exposed to transaction costs (bid-ask spreads, even if commissions are zero) and poor decision-making from fatigue.

Studies consistently show that the most active retail traders underperform passive investors by a significant margin. Quality over quantity is the mantra of successful traders.

5. Letting Emotions Drive Decisions

Fear and greed are the two emotions that destroy trading accounts:

• Fear causes you to sell winners too early and avoid good setups.
• Greed causes you to hold losers too long, hoping they’ll recover, and to take on excessive risk.
• Revenge trading—trying to immediately win back a loss—leads to impulsive, oversized bets that often make things worse.

The solution? Automate as much as possible. Set your stop losses and profit targets when you enter a trade, then walk away. This is where algorithmic trading has a massive advantage—algorithms don’t have emotions.

6. Not Diversifying

Putting your entire portfolio into one stock, one sector, or one strategy is a recipe for disaster. Even the best traders have losing streaks, and concentrated positions amplify the impact.

Practical diversification tips:

• Spread your portfolio across multiple sectors
• Mix different strategy types (trend following, mean reversion, momentum)
• Don’t allocate more than 5-10% of your portfolio to any single position
• Consider mixing timeframes (some short-term trades, some longer-term positions)

7. Neglecting to Backtest

Would you launch a product without testing it first? Then why would you risk real money on a trading strategy you haven’t validated?

Backtesting your strategy against historical data is non-negotiable. It won’t guarantee future results, but it will:

• Reveal obvious flaws in your logic before they cost you money
• Help you understand the typical drawdowns you should expect
• Give you confidence to stick with your strategy during inevitable losing periods
• Allow you to compare different approaches objectively

Many traders skip backtesting because it’s tedious. But platforms that automate backtesting across thousands of algorithms can do in minutes what would take you weeks to do manually.

The Bottom Line

Trading successfully isn’t about finding some secret strategy or getting lucky picks. It’s about developing a disciplined process, managing your risk, and continuously improving your approach based on data rather than emotions.

Every successful trader started as a beginner who made many of these mistakes. The difference is that they learned from them and built systems to prevent repeating them. Start with a solid foundation, keep your losses small, and let the compounding work in your favor over time.